trueq

Stumbled across something interesting in PNC/National City agreements

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I have a hypothetical defaulted National City/PNC account. Its currently owned by Asshat. There is no arbitration. I'm fairly sure Asshat will sue, eventually.

2 interesting things:

A.) SOL

1.) National City uses Ohio law===Crappy Ohio SOL

2.) PNC ===Delaware SOL, which is 3 years

We all know PNC is gobbling up and converting National City. So always use PNC governing law.

B.) The default provision.

Both PNC and National City use curious default language. It seems you are deemed in default "if you become insolvent or bankrupt".

https://www.pnc.com/webapp/unsec/Requester?resource=/wps/wcm/connect/065ae0804182195ba0b0ee1bd593aedb/M98274.pdf?MOD=AJPERES&CACHEID=065ae0804182195ba0b0ee1bd593aedb

(paragraph #18)

I've checked, this language is fairly unique to National City/PNC. In my state the SOL starts ticking when "cause of action accrues". My lawyer is adamant that "cause of action accrues" in our state when the contract is in default, usually at first missed payment.

This raises an interesting legal question...

What if I was insolvent 3 years before I missed the first payment?

Under WI Stats. 128.001(a) you are insolvent when your liabilities exceed your assets.

http://www.legis.state.wi.us/statutes/Stat0128.pdf

Under this standard, the cause of action could have accrued 3 years earlier than my first date of missed payment.

Edited by trueq

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Doesn't the SoL for open accounts start based on the date of last activity in an open account?

I think you are making a creative argument, although not one that would likely lead to dismissal. For one thing, the creditor would not know when you have become insolvent. They wouldn't receive any notice. This leads to an absurd result- you made minimum payments for three years and then the SoL prevents recovery? No way any court is buying it IMO. Many people are "insolvent" until they're in midlife when you factor in school loans, mortgage debt, etc.

Then there is a matter of proof. Asserting SoL means that the burden of proof is on you as an affirmative defense. So you'd have to prove insolvency on a date a certain amount of years ago.

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at any point in 2005. So if insolvency is default, I defaulted in 2005. Since default accrues cause of action in my state, (which starts SOL clock ticking) its far past DE SOL.

I never "cured" the state of insolvency. (At least until this past Jan 2010 when a bunch of stuff ran out on DE SOL and past the SOL on this account).

That's why this language is interesting! I have not found any other agreement where state of "insolvency" triggers default. (It does not make a notice provision requirement to inform the bank of the state of insolvency.)

So if you are insolvent and making payments, you are not in default under paragraph #18 of the agreement?

I think PNC/National City (or Asshat acceptence) would be hard pressed, under that language to say insolvency is not default.

That is an interesting question.

That's why I brought it up, its unusual language.

Normally, its says "a court declares you insolvent or bankrupt". So this language is rather "loose" because it does not require a court or legal proceeding to declare you insolvent!

Edited by trueq

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Did they define insolvent anywhere? Most Americans under 30 yrs old are insolvent. What a stupid open-ended one-sided clause to begin with. The creditor would have no way of knowing when someone is insolvent- only the debtor. A drafting lawyer without common sense?

In regards to this question: So if you are insolvent and making payments, you are not in default?, for many people who have made it through bankruptcy discharge, courts have answered this by saying that the "insolvency/bankruptcy = default" clauses are unenforceable. However, that was a case of the drafter attempting to use the clause offensively against a draftee, whereas in your case it is a case of a draftee using the drafter's clause against the drafter herself.

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it would be interpreted against the drafter in my case.

There is no definition of "insolvency" in the contract...so I would fall back to my state statues, which I posted above.

I agree with your point...it is a stupid, open-ended, default definition.

This is what I do....turn stupid lawyer language, designed to screw the consumer, against the bank.

If the government will not give me a bailout, I will make my own bailout!

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That provision is standard in almost every single customer agreement I have read.

Also the bank has to be given notice that you are insolvent or bankrupt in order to be considered in default. You can't just come along 4 years later and go but AHA! I was insolvent 3 years before the date of my last payment and now the SOL has run! Sucks for you guys! no that is not going to work.

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it would be interpreted against the drafter in my case.

There is no definition of "insolvency" in the contract...so I would fall back to my state statues, which I posted above.

I agree with your point...it is a stupid, open-ended, default definition.

This is what I do....turn stupid lawyer language, designed to screw the consumer, against the bank.

If the government will not give me a bailout, I will make my own bailout!

I have once discovered a similar bobo in the ATT CC contract 13 years ago while defending my wife's lawsuit. Forgot what it was but it was significant to our defenses. The ATT lawyer was denying it being in the contract but judge clearly told him that it is there and quoted it from the contract.

In-spite of that judge ruled against us.

The point is that judges do not believe that you "trueq" can find something significant in the contract which legal scholars can't. A judge will think that you are a nut case.

It would definitely work in higher court but in the local court it is 40/60 against you. Depends on the judge if he can get it.

However, it is significant finding IMO.:idea:

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That provision is standard in almost every single customer agreement I have read.

Also the bank has to be given notice that you are insolvent or bankrupt in order to be considered in default. You can't just come along 4 years later and go but AHA! I was insolvent 3 years before the date of my last payment and now the SOL has run! Sucks for you guys! no that is not going to work.

In contrast that, it is only your opinion. Legally it would have to be stated in the contract that a notice of insolvency is required.:roll:

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That provision is standard in almost every single customer agreement I have read.
With the same limited language as one TrueQ posted?

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I've checked a few more agreements.

It varies, here are some samples.

1.) National City/PNC

Section #18. DEFAULT. If A.) you become insolvent or bankrupt, B.)....

2.) U.S. Bank.

Section #28. DEFAULT. You and the account will be in default if:

d.) you become insolvent, assign any property to your creditors, or go into bankruptcy or receivership.

3.) Citi is silent on insolvency

4.) Cap1

Account Default

You will be in default of your agreement with us if:

d.) a bankruptcy or other insolvency proceeding is filed by or against you.

5.) Chase. Does not address insolvency, but does say,

DEFAULT/COLLECTION

Your Account may be in a default if any of the following applies:

• we do not receive at least the Minimum Payment by the date and time due as shown on

your billing statement.

• you exceed your credit line.

• you fail to comply with the terms of this Agreement or any other agreement with us or

one of our related companies.

• we obtain information that causes us to believe that you may be unwilling or unable to pay your debts to us or to others on time.

• you file for bankruptcy.

• you become incapacitated or die.

6.) HSBC.

Default. You will be in Default under this agreement if....d.) you become subject to bankruptcy or insolvency proceedings;

7.) AMEX.

Default. Subject to applicable law, we may also consider your account to be in default at any time....if we receive information indicating that you are bankrupt, intend to file bankruptcy, or are unable to pay your debts when they become due...

8.) FNB Omaha takes a novel approach and does not call it "default" at all

REASONS FOR REQUIRING IMMEDIATE PAYMENT: Subject to applicable law and any

right to cure that you may have under that law, we may require immediate payment of your

entire account balance if:

(1) you do not make any minimum payment to us when due;

(2) you make a payment to us that is dishonored for any reason;

(3) you die or become insolvent;

(4) you give us false or misleading information;

(5) a petition is filed by or against you in any bankruptcy, reorganization, arrangement,

insolvency, readjustment of debt dissolution or liquidation proceeding;

(6) a receiver, liquidator or trustee is appointed for you or any of your property, or you make

an assignment for the benefit of creditors;

(7) you are generally not paying or have announced that you will not pay your debts as they

come due;

(8) a breach occurs under any note, loan agreement, or other obligation for borrowed money

to which you are a party;

(9) a material adverse change occurs in your financial or other condition;

(10) you violate this Agreement or any other agreement you make with us; OR

(11) if we have reason to doubt your ability to repay us.

Our acceptance of a payment after one or more of the preceding events does not waive our right

to require immediate payment of your entire account balance.

9.) GE Money Bank says

"...we may declare you in default...iii.) you become subject to bankruptcy or insolvency proceedings;

(So GE Money Bank actually decides when to declare a default...OTHER AGREEMENTS DECLARE IT AUTOMATICALLY!)

_______

As we see, insolvency means many different things. Some require notice, some don't. Some require a legal proceeding to declare insolvency, some don't. One is smart enough not to call it "default" at all! One is smart enough to say they have to make the declaration of insolvency.

Clearly, insolvency default is not always determined by proper notice to bank, an actual legal proceeding, or formal bank decision.

National City/PNC agreement seems very weak next to tighter language of others.

Edited by trueq

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Just check one thing. In your state, has the term "default" been defined by statute? It would seem logical that if your state allows a cause of action to accrue at time of default, then your state may set the goal posts so as to prevent either party from being procedurally prejudiced by crafty drafting. Here it seems to hurt the creditor, but for example, what if this same bank changed the definition of default to be the point at which a debtor becomes one year past due? Then the bank would be able to extend the SoL from three years to four (DE) by drafting. That's prejudicial against the consumer. It would seem wise to me for a state that chooses to initiate their contractual SoL at the time of default to define just what default means to avoid this mess.

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Just check one thing. In your state, has the term "default" been defined by statute? It would seem logical that if your state allows a cause of action to accrue at time of default, then your state may set the goal posts so as to prevent either party from being procedurally prejudiced by crafty drafting. Here it seems to hurt the creditor, but for example, what if this same bank changed the definition of default to be the point at which a debtor becomes one year past due? Then the bank would be able to extend the SoL from three years to four (DE) by drafting. That's prejudicial against the consumer. It would seem wise to me for a state that chooses to initiate their contractual SoL at the time of default to define just what default means to avoid this mess.

Please notice that the CC agreements are always drafted with the state deviations in mind and these sates are listed in the contract.

I believe that "default" would be defined in the Uniform Commercial Code (UCC or the Code)

Edited by sub00

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http://www.legis.state.wi.us/statutes/Stat0425.pdf

However, this Wisconsin Consumer Act section LIMITS creditor cause of action in relation to default. (Meaning thaey cannot sue on credit card until 2 missed payments and a 15 day "Notice of right to cure" default before suit...it is not meant to define default contrary to more favorable consumer contract terms.)

Again, this makes it even more interesting.

Under our consumer Act, we may chose contract provisions to apply even though they may be contrary to our consumer act!

For instance, we cannot be forced to waive Wisconsin Consumer Act protection in favor od DE law.

However, if DE SOL works to our favor, consumers can chose DE law to apply!

Same principle here.

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I think you are reading too much into the statutory meaning of the word and ignoring the the plain meaning of the word "or" which is referring to the word bankrupt. It says IF you become INSOLVENT or BANKRUPT, then.....

The words insolvent and bankrupt are not adjectives, but are nouns. As we all should know that a noun is a person, place, thing, or idea. The use of the word "or" means synonymous or similar. In fact if you look up either word in a dictionary you will find that they are both synonyms of each other. I.E. Interchangeable not separate or distinct.

Also, regarding the SOL, it is not based on what law the contract states it is governed by, but rather the State where the contract was signed or where the consumer lives when the action is filed per the FDCPA.

811. Legal actions by debt collectors [15 USC 1692i]

(a) Any debt collector who brings any legal action on a debt against any consumer shall --

(1) in the case of an action to enforce an interest in real property securing the consumer's obligation, bring such action only in a judicial district or similar legal entity in which such real property is located; or

(2) in the case of an action not described in paragraph (1), bring such action only in the judicial district or similar legal entity --

(A) in which such consumer signed the contract sued upon; or

(
B)
in which such consumer resides at the commencement of the action.

(B) Nothing in this title shall be construed to authorize the bringing of legal actions by debt collectors.

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In WI, we get to choose the shorter of:

1.) WI SOL

OR

2.) The SOL of the choice of law state in contract.

WE CAN NEVER BE FORCED TO CHOOOSE THE LONGER SOL. (except by waiver or silence)

We also can never be forced to choose contract choice of law, unless we voluntarily choose to have it apply in the legal proceeding. (you cannot choose foreign state law application by waiver or silence.)

WI has 6 year SOL on credit cards.

DE, VA, and AZ has 3 years SOL on credit cards. Cap1, B of A, Discover, all use these states in their contract.

YOU NEED TO CHECK YOUR STATE LAW! I've used contract SOL to get paid for collecting past SOL, while still being well within WI SOL. My consumer attorney knows this subject very well. He is correct.

Also, if you check the WI state law definition of "insolvency" I posted above, "insolvency" and "bankruptcy" are two distinct things. I don't disagree that "insolvency" is a noun. Its a state of being.

Edited by trueq

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Ohio law SUCKS. There is case and appellate law decisions that says Ohio law applies to SOL unless the contract specifically identifies that the foreign SOL applies. I'll try to find the case and edit this post. The appeals court found that the "governed by the laws of the Commonwealth of Virginia", was not enough to override Ohio's SOL statute.

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If I lived in Ohio, I would have moved or declared BK.

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I agree with you on this one TrueQ on SoL. It isn't quite as simple as was posted above.

One thing I don't agree with- bankrupt and insolvent are NOT nouns. In the sentence, "you become insolvent" as used in the NCC/PNC agreement, "You" is the noun and "insolvent" is the adjective. The common plain meaning definition of insolvent is where your assets are worth less than your combined liabilities. It is a condition- certainly not a noun.

Besides, I'm not sure where we are going with the noun/adjective debate. Insolvent does not mean bankrupt. They are two separate concepts and would be treated as such by a court. Furthermore, the language of "insolvent or bankrupt" would lack practical meaning and become duplicative if they were not separate concepts. Contract interpretation rules are consistent with this.

People are laying out fundamental unfairness arguments as to why this "3yr prior insolvency" defense would not work. I agree it lacks logic and would lead to unintended procedural unfairness against creditors/collectors. But that's not a valid legal argument. :)

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